Airlines, Stock Splits and Voting – Bloomberg

[C]ross-ownership of many U.S. airlines by the same diversified institutional investors — index funds and “quasi-indexers” — discourages the airlines from competing on price and quality, and encourages them to focus on margins. An airline that cuts fares or spends money on better service to win market share isn’t necessarily doing its shareholders any favors: The increased market share comes at the expense of other airline companies that the shareholders also probably own….I think the “index funds ruin capitalism” story is best read as just one strand of a larger “financial capitalism ruins capitalism” story, and while the index funds story is still pretty niche, the financial capitalism story has become very popular. In this story, managers and investors have stopped thinking of companies as companies, as human networks of employees and customers and investors, and now think of them instead as numbers, as sets of financial factors to be optimized. There are many explanations for this: Developments in graduate business education, or the rise of corporate activism, or the cultural role of Wall Street. But the basic story is that companies used to balance the interests of workers, customers and investors; now they have adopted a fully investor-centric model in which profits are the only goal and customer service and workers’ rights are sacrificed. Sheelah Kolhatkar writes that “the investors-above-all doctrine seems to have triumphed over the more inclusive approach.”